Real estate investments in the United States have become an investment hit among many Israelis. Despite its increasing popularity, many investors face doubts and raise questions – is it in fact worthwhile? Does it pay off? Is somebody trying to trick us? We will discuss all these matters in the article before you.
Real estate investments in the United States – is it worthwhile?
After the sub-prime crisis in 2008, real estate prices in the United States have declined sharply. In order to prevent a total collapse of the economy, U.S. banks began realizing mortgages and sold real estate assets, especially apartments, at ridiculous prices. The decline in U.S. home prices, along with the incline in prices in Israel, marked the United States as a promising opportunity for investors. Thus, even then, savvy investors recognized the economic opportunity and began purchasing real estate, all in the belief that real estate prices would return to normal and even increase.
Indeed, since the crisis, home prices have increased and many investors have received tremendous returns for their investment. However, not all regions of the United States have returned to their original prices, and in light of the current coronavirus crisis, prices should be expected to decline again. Therefore, the American real estate market is again becoming a magnet for investors.
It’s not just low real estate prices that make investing in the United States worthwhile. Another advantage of real estate investment in the United States is the fact that this is an English-speaking country whose purchasing and management procedures are convenient, simple, and relatively reliable, thanks to, among other things, brokerage firms specializing in the field. Thus, even the unskilled investor can use the many aids available to a beginner investor and check the feasibility of such an investment.
Another important advantage of investing in the United States is the stability of the regime. The regime in the United States is stable, unlike other countries where real estate prices are low, there is no danger of a regime falling and jeopardizing the investment. Moreover, the capitalist mindset of the regime is generally characterized by sympathy for investors, both domestic and foreign. For example, the investment is not subject to a purchase tax in order to encourage investments.
If so, the high potential of an impressive return, coupled with the fact that it is a Western country, English speaking country, and is of course known as the “land of unlimited opportunities”, has made real estate investment in the United States particularly attractive to many Israelis. Still, what should you be wary of?
Real estate investments in the United States – what to watch out for?
Sounds too good to be true? When it comes to investing, one should always be careful and realistic. Despite the high yields and the seemingly rosy economic future, there are some rules of thumb that must be adhered to in order to turn an investment in real estate into an economic and profitable opportunity.
Transparency of data
The main concern when buying real estate overseas is the issue of reliability – how do we know that this is a real investment and not a fraud attempt? Indeed, this is a real concern since in light of the great distance we do not have the ability to take the most basic measurement and inspect the offered property.
The best way to deal with this matter is to pay attention to the transparency of the data – full transparency regarding the property, its characteristics, its location, its current owner, its physical condition, the parties involved in the transaction (seller and intermediaries), and no less important – the contract.
Check all the information you have been provided with about the property and verify it using the numerous databases of American real estate. Moreover, ask to see the contract from the beginning and before making any commitment. Check the contract and consult with professionals.
We will also recommend using the services of an appraiser on your behalf – that will examine the property closely, will estimate its characteristics, quality, and most importantly, its value.
Remember, a refusal to provide all of the above data should raise a red flag.
Location, location, location!
Of paramount importance in the success of an investment is its location. This is all the more true when it comes to real estate in the United States – where the distance between great success and total failure can be a few meters.
As those who are not familiar with the characteristics of the areas, neighborhoods, and streets, Israeli investors are exposed to critical mistakes regarding the location. An unsuccessful location choice will affect not only its cost but also the ability to rent or sell it later – a property may seem more attractive due to a low price but can actually be problematic in terms of location due to low demand, bad neighborhood, and the like
It is very important to check the value of the properties on the specific street and not only within the neighborhood, and similarly check the demand for rent on the specific street.
Moreover, the location of the property will affect the tenants’ identities and therefore is also a sort of risk management. Weak areas – both in terms of demand and in terms of the socio-economic status of the population – will make it difficult to remotely manage the property and hurt profits.
Be sure to check all the available location data.
The location of the property is important in one additional aspect and is the regulatory aspect, especially the taxation. In each U.S. state, investors and homeowners have different regulations to consider. This includes a regulation that regulates the relationship between the landlord and the tenant, as well as a regulation managing the tax regime that will be imposed on the investor as a landlord.
While some countries will take a pro-investor approach, in other countries the policy will actually be pro-renters. Similarly, state and municipal taxation will be different – some countries grant exemptions to investors, and in others, there is a heavy tax burden.
The regulation imposed on the property as well as the tax burden on the investor is critical in terms of the success of an investment. Due to the multiplicity of instructions and their complexity, we recommend that before each investment you consult with an expert tax consultant who will assist in careful tax planning of the investment.
Investing in American real estate can be a colossal success or a glorious failure. Ensuring the full clarification of the relevant details and strategic planning in terms of location and tax benefits will take you halfway towards success.
MasAmerica’s skilled team is experienced in real estate investments on its tax aspects and will be happy to be at your disposal.
This should not be seen as legal advice. It is recommended to consult with Masamerica’s team before any action. The service is provided by a professional team, who speak English and Hebrew fluently and includes lawyers and accountants with American licensees.